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Islamic Center of Nashville v. State of Tennessee

United States Court of Appeals, Sixth Circuit

September 20, 2017

Islamic Center of Nashville, Plaintiff-Appellant,
v.
State of Tennessee; Charlie Caldwell; Tennessee State Board of Equalization, Defendants-Appellees.

         Appeal from the United States District Court for the Middle District of Tennessee at Nashville. No. 3:16-cv-02498-Aleta Arthur Trauger, District Judge.

          Charles D. Swift, Christina A. Jump, CONSTITUTIONAL LAW CENTER FOR MUSLIMS IN AMERICA, Richardson, Texas, for Appellant.

          Mary Ellen Knack, OFFICE OF THE TENNESSEE ATTORNEY GENERAL, Nashville, Tennessee, for Appellees.

          Before: MERRITT, MOORE, and ROGERS, Circuit Judges.

          OPINION

          KAREN NELSON MOORE, CIRCUIT JUDGE.

         This case arises from a property tax assessed against an otherwise-tax-exempt religious nonprofit, the Islamic Center of Nashville (ICN), for a period of time during which it had formally transferred title to a bank through a financing vehicle called an ijara agreement that complies with Islamic doctrine. After ICN regained title to the property, it asked the Tennessee State Board of Equalization to apply its tax exemption retroactively to cover the period of time during which the bank had held title to the property, but both an Administrative Law Judge and then the State Board's Assessment Appeals Commission denied ICN's requests. The Tennessee statute governing tax appeals names the appropriate state chancery court as the next step for obtaining judicial review after these administrative adjudicators have first addressed the case. Because ICN instead filed suit in federal court, leveling a range of constitutional, federal statutory, and state statutory claims that would (on its theory) vitiate its obligation to pay taxes of the kind assessed, and because Tennessee's statutory provision for state-court appeal provides a plain, speedy, and efficient alternative to federal-court review, the Tax Injunction Act bars ICN's suit in federal court. Therefore, we AFFIRM the judgment of the district court dismissing ICN's case for lack of subject-matter jurisdiction.

         I. BACKGROUND

         The plaintiff-appellant in this case, ICN, is a duly credited religious nonprofit that operates both a mosque and a school in Nashville, Tennessee. R. 1 (Compl. ¶ 4.1-4.3) (Page ID #2); R. 1-5 (Compl. Ex. E, Letter to Charlie Cardwell) (Page ID #47-48). In August 2008, it commenced construction on a new school building, which it financed by entering into an ijara agreement[1] with a bank, whereby it could "borrow money without running afoul of the Islamic prohibition on the payment of interest." R. 1 (Compl. ¶ 4.5-4.7) (Page ID #3). Under the terms of the agreement, the bank essentially bought the property from ICN, leased it back to ICN, and then ultimately sold it back to ICN, with the lease payments serving the function that would otherwise have been served by interest payments. See R. 1 (Compl. ¶ 4.6-4.8) (Page ID #3); R. 1-3 (Compl. Ex. C, ALJ Initial Decision & Order) (Page ID #36-37). The ijara agreement lasted from August 2008 to October 2013, during which time the property was "continuously occupied by [ICN] and physically used solely for exempt religious educational purposes." R. 1-3 (Compl. Ex. C, ALJ Initial Decision & Order) (Page ID #38). The bank, however, held legal title to the property throughout this period of time. R. 1 (Compl. ¶ 4.8) (Page ID #3).

         Though the ijara agreement did not change the use or possession of the property, it did change the ownership, and the 2008 transfer of title from ICN to the bank thus prompted the county's tax assessor to "return[] the property to the tax roll." R. 1-4 (Compl. Ex. D, Appeals Comm'n Final Decision & Order) (Page ID #43). When ICN completed its payments in October 2013, it "regained the unencumbered title to the property." R. 1 (Compl. ¶ 4.11) (Page ID #4); R. 1-2 (Compl. Ex. B, Quit Claim Deed) (Page ID #28-30). In February 2014, "ICN applied for a property tax exemption regarding [the property], . . . seeking retroactive application." R. 1 (Compl. ¶ 4.12) (Page ID #4). The Tennessee State Board of Equalization's designee regranted ICN its exemption, but not for the time during which the bank had held title to the property. R. 1-3 (Compl. Ex. C, ALJ Initial Decision & Order) (Page ID #32). ICN appealed, and an administrative law judge (ALJ) for the State Board of Equalization heard its appeal in January 2015. Id.; R. 1 (Compl. ¶ 4.14-4.15) (Page ID #4). In February 2015, though noting that he was not "insensitive to the taxpayer's predicament" and calling the "outcome particularly unfortunate, " the ALJ upheld the tax assessment for the period during which the bank held title. R. 1-3 (Compl. Ex. C, ALJ Initial Decision & Order) (Page ID #36, 38-39).

         ICN appealed from the ALJ's decision, this time to the State Board's Assessment Appeals Commission. R. 1 (Compl. ¶ 4.21) (Page ID #5). In May 2016, the Commission ruled that although it "sympathize[d] with the taxpayer's sincere desire to comply with religious principles, [it was] unable to ignore the legal transfer of title." R. 1-4 (Compl. Ex. D, Appeals Comm'n Final Decision & Order) (Page ID #44). It noted that its order was "subject to, " among other forms of (discretionary) administrative review, judicial "[r]eview by the Chancery Court of Davidson County [the county in which Nashville is located] or other venue as provided by law." Id.

         ICN did not seek review in the Tennessee chancery court, and, as it acknowledged in its Complaint in this case, "[t]he decision of the Assessment Appeals Commission became final June 16, 2016." R. 1 (Compl. ¶ 4.25) (Page ID #6). Instead, ICN filed suit in federal court in September 2016 against the State of Tennessee, the Tennessee State Board of Equalization, and Charlie Cardwell, [2] the Metropolitan Trustee of Davidson County. In its suit, ICN alleged causes of action under the federal Religious Freedom Restoration Act (RFRA) "and its Tennessee Counterpart"; the federal Religious Land Use and Institutionalized Persons Act (RLUIPA); the federal Elementary and Secondary Education Act of 1965; and the First Amendment's Establishment Clause.[3] R. 1 (Compl. ¶¶ 5.1-5.21) (Page ID #7-12). ICN sought damages, as well as "preliminary and permanent injunctive and declaratory relief." R. 1 (Compl. ¶¶ 6.1-6.6) (Page ID #13).

         In October 2016, the state parties (the State) moved to dismiss for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), citing (among other arguments) the federal Tax Injunction Act, 28 U.S.C. § 1341.[4] R. 13 (Mem. in Support of Mot. to Dismiss) (Page ID #74). In December 2016, the district court granted the State's Rule 12(b)(1) motion on that ground. R. 27 (Dist. Ct. Mem.) (Page ID #146). ICN timely appealed.

         II. DISCUSSION

         This appeal raises two issues: First, whether the district court was correct to dismiss ICN's claim for lack of subject-matter jurisdiction on the ground that it was barred by the Tax Injunction Act (TIA). And second, whether the district court abused its discretion by dismissing ICN's case without giving ICN leave to amend. For the reasons that follow, the district court was correct to dismiss the case as barred by the TIA and there was no abuse of discretion.

         A. Standard of Review

         "This Court reviews de novo the dismissal of a complaint under Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction." Colonial Pipeline Co. v. ...


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